Understanding how the stock market works

Many people do not understand how the stock market works yet they still buy and sell shares and invest in the stock market. If you buy shares in a company, you actually own part of that company. You and the other shareholders own the company in common. If the company has good earning results then it is likely that the share value will increase so all owners of the company will benefit.

The stock market is often a measure of strength and vigor of business and the economy. A key point to remember, is the stock market reflects economic conditions and often looks ahead months into the future. The stock market is often is a reliable economic forecasting tool. It will tend to start going up months before the end of a recession, and tend to start going down months before the end of a good economic cycle.

Share prices are determined by what others are willing to pay for them at any point in time. If the company you invest in proves to be successful by having a consistent record of solid earnings and sales, there is a good chance it will be worth more than what you paid for it.

Stock market prices are determined by a number of factors, involving company fundamentals, sales, future growth potential but it ultimately is determined by a balance between those that believe the price will go higher (the bulls) and those that believe the price will drop (the bears). The stock price is a balance somewhere between these two opinions.

Basically how the stock market works is that it is an auction or market place for the exchange of ownership of shares in companies.

There are stock market strategies which enable investors to generate cash flow irrespective of stock market direction. One simple low risk strategy often utilised by savvy, astute investors is the “share renting” strategy. This strategy can be easily taught by investing in an online stock trading course.

A simple stock market strategy like share renting means that investors can earn consistent cash flow without a complex knowledge of how the stock market works and understanding of the technical terms and jargon. It is a great place to start for the beginner stock market investor.